Friday, July 12, 2013

By Kumar Ramanathan/Think ProgressA bipartisan group of Senators are proposing the “21st Century Glass-Steagall Act” in an effort to curb the power of big banks by reinstating a Depression-era rule that separated commercial and investment banking. Senators Elizabeth Warren (D-MA), John McCain (R-AZ), Maria Cantwell (D-WA), and Angus King (I-ME) proposed the bill on Thursday.

Enacted during the Great Depression, the Glass-Steagall Act prevented commercial deposit banks, which are insured by taxpayer money through the Federal Deposit Insurance Corp (FDIC), from engaging in insurance and risky investment activities. These restrictions were repealed in 1999. The new bill would reinstate and update the separation between commercial and investment banking, giving financial conglomerates a five-year transitional period to split up their businesses to come into adherence with the firewall.

“Banks should be boring,” Warren argued in her initial public push for the bill, her first major banking measure in the Senate. The bill is more than a mere a reinstatement of the original 1933 Glass-Steagall Act, however. It would also bar commercial banks from some of the newer, more complex practices that they became infamous for in the wake of the recession, including trading complex derivatives and swaps or engaging in hedge fund and private equity activities. Warren explained in a conference call with reporters on Thursday that the new bill also seeks to close loopholes created by regulators’ interpretation of the original bill in the 1980s and 90s preceding its repeal.

“Americans want safe banks,” Warren said when asked how she would respond to opponents of Glass-Steagall. “The banks that handle their checking and savings accounts should be rock-solid secure, and they should not be juicing their profits by taking those insured deposits and insuring them in wild financial schemes.” McCain echoed those comments in a statement, adding, “If enacted, the 21st Century Glass-Steagall Act would not end Too-Big-to-Fail. But, it would rebuild the wall between commercial and investment banking that was in place for over 60 years, restore confidence in the system, and reduce risk for the American taxpayer.”

Warren said that she believed this bill would succeed where others failed because a bipartisan group of senators are willing to fight for it publicly. “People said we could never get the consumer protection bureau. But we fought for it, and now we have an agency protecting consumers from credit card and mortgage scams,” she said on the press call. “I’ve lived in this world where people say to me ‘You can’t do this,’ and when they say that, I just say to them, Consumer Financial Protection Bureau. We have done it.”

“I’ll be out there fighting, and here’ll be the fun part,” she added. “I’ll be fighting right next to John McCain.”